Long political fights ahead over dueling tax plans

ALAN FRAM
Associated PressPublished: April 15, 2012 8:25AM

WASHINGTON (AP) -- Democrats and Republicans are forcing votes in Congress this coming week on competing tax plans that affect millionaires and smaller businesses, and they know the proposals are doomed from the start.

But that doesn't matter to either party.

Their bills are more about pontificating than legislating, aimed at voters in November's congressional and presidential elections.

Neutral economists say neither bill would do much for the economy or job creation. Some political professionals are equally unimpressed with their potential impact on voters.

Undaunted, congressional leaders hope to maximize public attention by timing both roll calls with an eye to Tuesday, the annual deadline for filing income taxes with the Internal Revenue Service. The upcoming votes probably are just a start.

Senate Democrats later this year may hold votes tied to President Barack Obama's "Buffett rule," using his idea of a minimum 30 percent tax on the wealthiest to raise money for proposal to create jobs and keep student loan rates from rising.

With trillions in tax cuts dating from President George W. Bush set to expire in January, House and Senate leaders also are considering campaign-season votes on extending popular parts of those reductions, such as preventing the $1,000 child tax credit from being cut in half.

In addition, Obama and his all-but-certain GOP opponent, Mitt Romney, will spend much of the campaign promoting their tax blueprints as antidotes to an economy still struggling to generate jobs.

Besides raising taxes on the wealthy, Obama would boost levies on many U.S. companies that do business overseas, and on the oil and gas industry. The new money would help lower individual and corporate rates and reduce federal deficits.

Romney would continue all Bush tax cuts, including those for the richest people, while trimming rates and eliminating estate taxes.

"If this were a heavyweight fight, we're still in the first round where both sides are kind of feeling each other out," Republican consultant Mike McKenna said about the votes in the week ahead.

On Monday, as Congress returns from a two-week spring break, the Democratic-led Senate expect votes on a "Buffett rule" measure by Sen. Sheldon Whitehouse, D-R.I. It would slap a minimum 30 percent income tax on people making over $2 million yearly and phase in higher taxes for those earning at least $1 million. Republicans are sure to block the bill, nicknamed for billionaire Warren Buffett, who backs higher taxes on the rich.

The GOP-run House plans a Thursday vote on legislation providing a 20 percent tax deduction for businesses that employ fewer than 500 workers, which covers 99.9 percent of all companies. The proposal, sponsored by House Majority Leader Eric Cantor, R-Va., seems certain to pass, but fail in the Senate.

Those votes are set just as many Americans stare at their own tax returns. The Internal Revenue Service says that through April 6, it had received 99 million of 145 million expected returns. So far, 80 million refunds have been issued averaging $2,794, down $101 from last year.

For political leaders looking ahead to the November elections, the demise of this week's bills will matter little.

Democrats think the Buffett rule vote will underscore their commitment to economic fairness and GOP favoritism for the rich, a prominent election theme. Hammering at it lets Obama shine a spotlight on Romney, a former private equity executive who has paid an income tax rate of about 15 percent on annual earnings of $21 million, which is a lower rate than many middle-class families pay.

"In America, prosperity has never just trickled down from a wealthy few," Obama said Wednesday during a week packed with events promoting his plan. "Prosperity has always been built from the bottom up and from the heart of the middle class outward. And so it's time for Congress to stand up for the middle class and make our tax system fairer."

Republicans believe the business tax measure will spotlight their efforts to lower taxes and create jobs, contrasted with Democrats' preference for higher taxes to finance ever-larger government. They believe they win the debate by keeping the focus on those subjects, not what the wealthy pay.

"We want small-business people to have more money go to their pockets, not the government's," Cantor said recently at a Virginia high school. "And then they have more money to make decisions about hiring, about retaining jobs and about creating more jobs."

Democratic political consultant Alan Secrest said both measures might excite the most fervent partisans but do little for independents, who he said care more about jobs.

"And neither party has a particular advantage on that right now," Secrest said.

The Buffett rule is clearly popular. An Associated Press-GfK poll in February showed that nearly 2 in 3 favor a 30 percent tax for those making $1 million annually, including most Democrats and independents and even 4 in 10 Republicans.

Yet the measure would raise just $47 billion over a decade, a smidgen of the $7 trillion in federal deficits expected during that time.

While a 20 percent tax deduction would be welcomed by any company, the $46 billion in lower taxes Cantor's bill would provide over the next six years would barely register on the $100 trillion in U.S. economic activity projected for that period. There also are doubts that it would spur new jobs.

"If they have more sales, they'll hire," said Maury Harris, chief U.S. economist for UBS, the investment bank. "If they don't have the sales, they won't hire. That's what it's all about."

Senate Democrats, who champion a narrower bill providing tax credits for firms hiring workers, call the GOP small-business cuts "a profit-padding tax giveaway." Democrats have also criticized extending Bush's tax cuts for being too costly at a time of big budget deficits, though most favor extending them for all but the highest earners.

Rep. Dave Camp, chairman of the House Ways and Means Committee, said the business tax cut bill would show that Republicans are trying to spark job growth. He also said he would welcome Democratic opposition to any votes this year, should they occur, on renewing Bush's tax cuts.

"If the Democrats want to have all those taxes go up, let them," said Camp, R-Mich.